Weekly Cryptocurrency & Blockchain Recap – January 21, 2019
Contributing author Merav Ozair, PhD
Here are the highlights of the past week and a thought of the week to consider:
It seems that crypto exchange hacks are not over in 2019. The first to announce a major hack in 2019 is Cryptopia, a New Zealand-based cryptocurrency exchange. On Tuesday the exchange tweeted that it “suffered a security breach which resulted in significant losses.” As a result the exchange has been completely off-line and put into maintenance mode to assess the damages. As of Monday January 21st 2019, the exchange is still down. A tweet on Saturday indicated that 19,391 ether (ETH) tokens worth nearly $2.44 million and around 48 million centrality (CENNZ) tokens worth about $1.18 million were transferred from Cryptopia to unknown wallets on Jan. 13. It is not currently clear if those funds were moved by the hacker or by the exchange.
QuadrigaCX, a Canadian crypto exchange, has won a court dispute that had held up $19 million of funds by CIBC, the Canadian bank it was working with. Yet, its customers are complaining they still can’t get their money out, more than a month after the court ruling. Users’ concerns were compounded by the company’s announcement on Monday that its CEO and founder, Gerald Cotten, had died more than a month earlier. QuadrigaCX blamed the withdrawal backlog on its recently resolved court dispute with the Canadian Imperial Bank of Commerce (CIBC), which froze funds held by the exchange’s payment processor, Costodian, Inc., over concerns about their origin. While the Ontario Superior Court of Justice briefly took custody of these funds last year, Judge Glenn Hainey released the majority of them back – $70,000 in U.S. dollars and $25 million in Canadian dollars (about $19 million USD), less $200,000 that was withheld. These funds were then frozen by the processor’s new bank, the Bank of Montreal. Billerfy, a payment processor, which endorsed the banks drafts, stated that it is having problems finding friendly banks to take the drafts. No matter what is causing the delay, QuadrigaCX customers are requesting a more expedite withdrawal processing.
Bitcoin scaling upgrade, known as Segregated Witness, or SegWit, was activated on the bitcoin network over a year ago. Yet, only an estimate of 36% of all bitcoin transactions are actually using it. Why the minimal adoption rate? It’s largely because, like any backward-compatible upgrade (otherwise called a soft fork), SegWit ensures participants in the bitcoin network that haven’t upgraded to the same software can still follow the same network only under a slightly less-restricted ruleset. As a result, some bitcoin businesses and exchanges have put off making the switch to enable SegWit transactions despite the low-fee advantage that it presents when sending bitcoin payments. Seeing mass adoption of SegWit as a slow but inevitable reality, Blockstream developer Russell explains that, in his view, technology proliferates “in 10- to 25-year cycles” making it “still very early” in the SegWit adoption game. We just have to wait and see…
Grin, a new privacy-oriented cryptocurrency, was officially launched on Tuesday. It has long drawn the interest of cypherpunks, but now another group turned out in force to mine on the network – investment firms. Wan’s partner at Primitive, Eric Meltzer, wrote about the Grin launch in his Proof of Work, this week, noting that at least 100 million dollars have been invested by VC’s into special-purpose investment vehicles to mine Grin. This changes the composition of the early holder roster and it means that the chain will launch with an extremely high degree of security via high PoW hashrate. It seems that mining the network will not be profitable, especially early on. So why the demand? “This is the thing that comes closest to bitcoin,” said a partner at a crypto investment firm who spoke on the condition of anonymity. “In a lot of investors’ minds it kind of pattern-matches to ‘bitcoin 2.0.’”
Ethereum, again, was the highlight of the week. This time not Ethereum Classic, but the long-awaited Ethereum hard fork, Constantinople. The system-wide ethereum upgrade was postponed a day and a half before it was expected to activate after blockchain audit firm ChainSecurity discovered a security vulnerability in one of the five improvements included in the software. Core developers and network participants agreed during an emergency call that there was insufficient time to patch the bug prior to the planned execution at block 7,080,000. The bug, found in Ethereum Improvement Proposal (EIP) 1283, would have allowed malicious actors to essentially withdraw funds “forever” in what is known as a re-entrancy attack. Typically gas costs on the ethereum network can prevent such attacks. However, EIP 1283 would have lowered gas costs significantly, to the point where re-entrancy attacks could be executed in certain smart contracts. The discovery and subsequent decision to postpone the hard fork led to a push to have node operators and miners upgrade or downgrade their software to prevent the upgrade from activating.
A Thought to Consider
The St. Louis Federal Reserved (FED) published a research paper analyzing whether a surge in altcoin popularity might be depressing the price of bitcoin. Let’s examine this hypothesis, but from a user perspective.
In 2016 bitcoin market share was around 80% three years later, in beginning of 2019, bitcoin has been hovering around 50% or so market share. During this time, many new altcoins, new protocols, new platforms have been introduced to the user. Whether it’s an individual seeking payment with cryptocurrencies or a business considering a platform to build its DApp, each has many more options to choose from. Some of these options offer faster and cheaper transactions, others offer more privacy. Whatever the use case is, they simply offer more competition. More competition also means pressure on prices to go down. But, this is all good for the user.
Competition will increase as more altcions and platforms continue to be developed and introduced to the public. What does it mean for bItcoin? Maybe bitcoin will be losing its “power” and thus its value.
About the author
Dr. Merav Ozair is a data scientist, a quant strategist and a crypto/Blockchain expert. She has more than 12 years of business and consulting experience and more than 15 years of teaching experience working with both graduate students and financial professionals. She holds a PhD in Finance from the NYU Stern School of Business.
Dr. Ozair is also the founder of CryptoNerve, providing the crypto market pulse through proprietary indexes and valuation models. She is always happy to discuss cypto and you can reach her at mr649@nyu.edu.
